Following on from what were described by Minister Leo Varadkar yesterday as “not non-serious” talks between the Department of Finance and a group of unnamed international investors, Minister for Finance, Michael Noonan has announced this morning the conclusion to these talks with the still unnamed investors agreeing to invest “up to” €1.123bn for “up to” 37% of Ireland’s oldest bank, Bank of Ireland, which is presently 37%-owned by the State.
“The commitment by a number of significant private sector investors to invest side by side with the State’s retained holding without any form of additional risk sharing by the State reaffirms the credibility of our stress tests” claimed the Minister. The €5.2bn identified in the March 2011 stress tests will be reduced by €2.4bn, being the contribution from subordinated bondholders in “ongoing and future burden sharing” plus the €1.1bn from this morning’s announced transaction. Meaning that Bank of Ireland will consume just €1.7bn of a State injection later this week in addition to the €3.75bn already “invested”
Worryingly the Minister is saying that the investment in the banks later this week of approximately €18bn will be taken from Ireland’s own funds, and not those provided by the EU/IMF who are now offering the bailout funds at ~3.5% in the EU’s case and 4.77% in the IMF’s case (and that will shortly drop). The Minister claims that using our own funds will result in interest rate savings. A worry on here is that depleting our own funds, especially when low interest funding has now been made available by the EU, will curtail our freedom of action when the inevitable talks on default (senior bondholders at Anglo and INBS, and potentially others, and potentially sovereign akin to the Greek solution) start later this year. Last year the NTMA generated a return of 11.7% on its assets under management. If these returns are still available, why use these funds when the EU/IMF funds are available at approximately 4% blended average?
At 10:30am today, Bank of Ireland’s shares were trading at 11c a share, up .9c or 9% on the day. There will be further reporting and analysis of this transaction later today.
UPDATE (1): 25th July, 2011. The Irish Independent is claiming that veteran US investor, Wilbur Ross of WL Ross is one of a group of international investors which has bought into Bank of Ireland. Last year and indeed until March this year, Wilbur was considered to be at the fore of the group poised to acquire the Educational Building Society (alongside the Carlyle Group from the US and local boys, the Dublin-based Cardinal Group). That sale fell through when the incoming government decided to take the sale off the table. EBS was subsequently merged with AIB. But Wilbur it seems is back, though this time without Carlyle or Cardinal.
UPDATE (2): 25th July, 2011. RTE broadcast news (Six One News) reports that Cardinal is in fact a party to the Bank of Ireland deal, contrary to the report in the Independent. A Canadian company is reported to be the third party to the deal.
UPDATE: 27th July, 2011. RTE Six One News, and now RTE online, has reported the names of three more investors who are part of the above consortium – Capital Research (part of The Capital Group), Fidelity Investments and Kennedy Wilson. No word of the Cardinal Group named by RTE as an investor on Monday.
UPDATE: 31st July, 2011. The Sunday Independent reports that Fairfax and WL Ross have each taken a 9% stake in Bank of Ireland.
UPDATE: 28th February, 2013. Just as a footnote to the deal announced above, the deal concluded and on 26th February 2013 in the Dail, the Minister for Finance provided the following response to a parliamentary question from the Sinn Fein finance spokesperson, Pearse Doherty “On 25 July 2011, the Minister for Finance announced that a group of investors had committed to buy up to €1.1bn of the NPRF’s shares in Bank of Ireland. This commitment reduced, from €1.9bn to €0.8bn (58% reduction), the potential maximum cost for the State to meet the bank’s PCAR equity capital requirement. As a result of investment from other non-Government sources, the total cost to the State (through the NPRF) from underwriting the bank’s equity capital raise reduced from €0.8bn to €0.2bn (including net underwriting fees received by the NPRF of €0.05bn).
The actual amount sold by the NPRF to the investors was 10.5bn Bank of Ireland shares at a price of 10c per share. The disposal of these shares took place in two tranches. The first disposal for €0.24bn settled on 2 August 2011 with the second, and final, tranche for €0.81bn settling on 17 October 2011.
The net proceeds from the disposals were transferred, on foot of a Ministerial Direction, from the NPRF to the Exchequer within 5 days of receipt from the investors.
There are no further payments due.”